Rebutting the IECA Attack on My Natural Gas Exports Study

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Last month, The Hamilton Project published my in-depth study assessing the costs and benefits of allowing U.S. liquefied natural gas (LNG) exports. Earlier this week, the IECA, a trade association that lobbies for large industrial consumers of natural gas, hit back hard in a four-page letter attacking the study. I gather from several journalists’ enquiries that the letter, which identifies seven specific points of disagreement, is making the rounds. This post will explain, point-by-point, why the IECA letter is wrong, and then offer some summary observations.

IECA Claim: “The report does not provide a true comparison of the economic benefits of natural gas exports versus using natural gas in value-added manufactured products.”

Response: The IECA authors write, “The paper’s biggest omission is a full discussion of the opportunity that natural gas used in manufacturing brings to the U.S. economy.” A paper focused on opportunities to use natural gas in manufacturing would have been interesting, but that isn’t the paper I wrote. My paper looked in depth at how allowing exports would affect the prospects of energy intensive manufacturing relative to what they would have been otherwise. When doing an analysis of costs and benefits, that’s the right way to proceed. Whether natural gas, more broadly, is great or awful for manufacturing, is beside the point.

The IECA authors also emphasize the following point: “Manufacturing natural gas consumption creates far more jobs per unit of gas consumed than any other application.” That may or may not be the case (I’d love to see the reference) but regardless, it isn’t relevant to the exports question. As I explain at length in my study, choosing to block exports would not steer export volumes into manufacturing – for the most part, it would keep natural gas in the ground. There is no policy decision to be made between allowing X units of gas to be exported and having X units of natural gas be used in manufacturing.

Response: The report does not assume that domestic demand will remain static. There’s not much more I can say here — it simply doesn’t.

IECA Claim: “The report inaccurately states that natural gas exports are a good thing for the manufacturing sector because it raises natural gas prices and reduces consumption.”

Response: The report does not state that natural gas exports are a good thing for the manufacturing sector. The IECA letter emphasizes the following words in my study: “At the same time, higher prices will spur lower domestic natural gas consumption in power generation and industry”. That’s true, but it’s hard to see how anyone would interpret that as a claim that exports are good for those sectors. The context of that claim makes clear that I see this as a negative, not positive, result. I reiterate its negative nature in the summary section of my study (it shows up in the “costs” column).

IECA Claim: “Jobs created by natural gas export facilities are small, relative to the opportunities to increase manufacturing jobs. Higher resulting natural gas prices will negatively impact U.S. manufacturing employment and ultimately additional jobs across the broader economy as well.”

Response: This completely misses the point. Jobs created by export facilities are indeed small – but the jobs created supplying natural gas for them are much larger. My study is the first to offer in-depth estimates of employment impacts, including in manufacturing, across the supply chain. Most jobs supported by exports will be in gas production and in its supplies – including in energy intensive areas like steel and cement. My study estimates that those jobs will be roughly an order of magnitude larger than the jobs lost due to higher natural gas prices. Rather that critique those estimates, though, the IECA letter acts as if they don’t exist.

IECA Claim: “Global price transparency and market-based pricing is not a benefit for domestic consumers of natural gas. U.S. consumers have price transparency. Prices set by global demand means higher prices.”

Response: This is all true, and I don’t claim anything different in the study. I argue that global price transparency is good for U.S. foreign policy. (There are many things that are good for U.S. foreign policy that don’t help industrial energy consumers.) The study also includes a lengthy discussion of potential price impacts.

IECA Claim: “The report does not acknowledge that a host of threats could slow, if not derail, shale natural gas production.”

Response: This is not true. There is an entire section of the report devoted to asking how the analysis would change, and whether its policy implications would hold up, if natural gas were less available that most assume it will be.

IECA Claim: “Increased demand through LNG exports does not help the manufacturing sector.”

Response: The report does not say that it will. I does argue, though, that there are two potential upsides that could offset downsides from higher natural gas prices. First, exports will boost demand for manufactured products that are used in the shale gas production supply chain. (The IECA authors don’t mention that part of the study.) Second, new export demand means more natural gas liquids (NGLs) production, which might benefit some industrial consumers if they are stripped out prior to export. I explain all of that in the study. Yet the IECA authors hit me for ignoring the possibility that NGLs might not be stripped out. I don’t ignore it at all.

Summary

The IECA attack on my study makes four fundamental mistakes.

The logic in the IECA letter appears to be based in a zero-sum vision of natural gas exports that does not accord with reality. In its view of the world, every cubic foot of natural gas that’s exported is a cubic foot that would otherwise have been used in industry. That’s wrong: most natural gas that would be exported will instead stay in the ground if exports aren’t allowed. Meanwhile, the gains in manufacturing that are being spurred by abundant natural gas will largely materialize regardless of whether exports are allowed.

The IECA letter ignores the massive amount of manufactured content that goes into producing natural gas. Any discussion of the manufacturing impacts of allowing natural gas exports that doesn’t include this dimension is incomplete.

The IECA letter repeatedly makes factually untrue claims about what my study does or doesn’t say. I’m all for a debate on the merits of my estimates and analyses, but to have that debate, we all need to agree that those estimates and analyses exist.

The final point is perhaps the most important. There is rarely a policy in which every last person and firm comes out a winner; I suspect that none exist. Allowing natural gas exports is no different – not everyone will be a winner. Some parts of the manufacturing world, like fertilizer and glass, will lose at the margin. But it is important to remember that they still expect to gain substantially from increased natural gas supplies – and that allowing exports won’t change that.

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